Citi launches pilot foreclosure-rental program

AlanZibel

WASHINGTON--Citigroup Inc.
C, +0.14%
is launching a program under which 500 distressed homeowners will be able to rent back their homes if they sign over the deed, a step some lenders are now taking to provide an alternative to foreclosure.

The bank is expected to announce Wednesday that it has sold $158 million in loans it holds on its books to a joint venture between Carrington Capital Management LLC and Oaktree Capital Management LLC, two firms that invest in distressed real estate assets.

Homeowners in Arizona, California, Texas, Florida, Nevada and Georgia will be offered the opportunity to rent the homes if they can no longer afford their mortgage payments, even with a modified loan. The pilot effort could be expanded to more homes if successful.

Under the program, borrowers would agree to a &

quot;deed-in-lieu" of foreclosure, in which they sign over ownership of the property to the lender. Doing so is less costly to the bank and does less damage to a borrower's credit than a foreclosure.

Citi picked Carrington as a partner because the bank did not have the expertise to manage the program on its own, Sanjiv Das, chief executive of Citi's mortgage unit said in a statement.

"In addition to helping families by keeping homes occupied, the program assists neighborhood revitalization and stabilization efforts, which are crucial to the nation's economic recovery," Mr. Das said.

Bruce Rose, Carrington's CEO, said in a statement that offering alternatives for borrowers "is core to the operating principles of our firm and will help substantially in the overall housing market recovery."

Borrowers are not required to accept the "deed-for-lease" program. The leases are expected to be signed at market rates but are likely to be lower than the borrower's current mortgage payments.

Earlier this year, Bank of America Corp. (BAC) launched a similar program involving 1,000 homeowners in Arizona, Nevada and New York.

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